Vancouver condo prices. Immigrants? Rents and interest rates.

Vancouver condo prices have been falling since April, 2022.

The narrative promoted by mass media, politicians, and sell-side FIRE (Finance, Insurance, and Real Estate) sector marketers to explain this is that Ottawa having reduced immigration, "demand" for housing has therefore decreased and prices, because of "Economics 101: Supply and Demand," are falling.

There are several problems with this narrative.

First, it seems to draw a distinction between "demand" for housing and the "need" for it such as is detailed in the "City Of Vancouver Housing Needs Report April 2022," according to which:

There is significant housing need in Vancouver, including unmet needs among existing residents, as well as anticipated demand from future residents and a changing population. Following Provincial guidance, estimates of housing need in Vancouver's report are presented in terms of the number of current and future households, identifying approximately 86,000 existing households in need, and future housing demand from approximately 50,000 anticipated households over the next ten years. Substantial housing need in Vancouver is also demonstrated through market indicators like low rental vacancy rates, rising rents and home prices, and waitlists for non-market housing …

Approximately 77,000 households in Vancouver are experiencing housing need due to unaffordable, unsuitable, or inadequate housing, as reported in 2016 Census data, plus approximately 2,000 individuals experiencing homelessness and 7,000 people living in Single-Room Occupancy (SRO) hotels.

Even if a decrease in BC's population in general and Vancouver's in particular were responsible for the drop in condo prices, it is not immigration (net increase 251) that accounts for the 2,357 decrease in BC's population from Q1 to Q2 2025 but 1,636 BC residents having left BC – in all likelihood to find a lower cost of living out of province – and deaths outnumbering births by 972.

Besides, BC net immigration fell from an all-time high of 21,757 in Q1 2021 to 13,700 in Q2 2022 while Vancouver's condo price index rose almost 10% from 112.8 to 124.0.

And by Q1 2023, when Vancouver 's condo price Index had fallen to 121.4, BC net immigration had risen to 20,904, an almost 50% increase in BC net Immigration from Q2 2022.

Most to the point, however, is that the limit that Vancouver's workforce can pay for rent has been reached.

According to a June 20, 2024, CTV News article, "1 in 4 Vancouver tenants spending more than half their income on rent: report," 27% of renters in Vancouver are spending more than half their income on rent; and across BC, according to the same report, 42% of renters are paying between 31 and 50 percent of their income on rent.

Another survey, reported in an April 12, 2024, Vancouver Sun article, "Metro Vancouver renters are spending more than 60 per cent of salary on rent, says rental report," concludes that Vancouverites "are spending an average of 61.65 per cent of their monthly pay on housing – more than double the recommended amount."

Whichever of these numbers is correct, condo prices can rise no further and in fact fall when rents reach the limit tenants are able to pay. This is because as many as 30% of pre- and post-construction condo sales are to so-called "investors" who buy condos with the intention of reselling or renting them out.

Tenants are supposed to pay off such "investors'" mortgages plus a certain percentage in unearned income to make holding and renting out these condos profitable. Similarly, "end-users" are supposed to buy such units for more than pre-construction "investors" paid for them.

Rents having reached the point where tenants and "end-users" are able to pay no more, condo prices cannot rise, so holders looking to profit by renting their units out or waiting to sell them for more than they paid are selling them and looking for more profitable "investments" elsewhere.

This has nothing to do with "demand" for accommodation, which is as high as it has ever been, but is entirely a function of workers' incomes and the heights to which two decades of near-zero interest rates have driven housing prices.

Supply-side fundamentalism seems not to recognize that there is a limit to the price renters and "end users" are financially able to pay for housing and insists that condo prices are falling in Vancouver because of a decline in "demand," which it attributes in turn to "fewer immigrants" even though population decline in BC is being driven primarily by interprovincial migration, not international immigration

The narrative that housing prices are driven by "supply" of structures in which to reside and "demand" for them by households competing to inhabit them – a corollary of which is that housing prices track immigration (which, by the way, is cyclic and consists mainly of temporary workers and students) – has been carefully inculcated for decades into the minds of the Canadian public because to believe this fervently is to accept as inevitable relentless leaps in the price of housing skyward.

Cui bono, of course, are holders, who justify charging tenants and "end-users" outrageous prices on this basis, as well as legions of FIRE sector actors who profit by issuing, securitizing, and trading debt used to finance real estate transactions. The rest of society loses, though, as private sector capital ignores long-horizon investment in productive economic activity and dollars that could otherwise be spent improving access to healthcare, education, and other public services are wasted paying inflated prices for housing.

All this aside, the fact is that condo prices falling in Vancouver reflects the extreme to which financialization has driven the unaffordability of housing in Vancouver, all of BC, and all of Canada since March, 2001, when, the dot-com bubble having burst, speculators turned their attention to housing.

Housing prices being unable to rise further after Q2 2022, holders have been selling and potential buyers are considering other, more profitable "investments." As a result, developers, because they rely significantly on presales for financing, are having trouble launching or completing projects.

A PwC (Price Waterhouse Cooper) and ULI (Urban Land Institute) report titled "Emerging Trends in Real Estate 2025," provides technical financial analysis prepared by and for buy-side insiders in the FIRE sectors of the Canadian and U.S. economies.

It centers discussion around questions of asset-price appreciation, ROI (return on investment) on rental properties, and access to credit in a period when, after 21 years of near-zero Bank of Canada overnight interest rates, cheap abundant capital is no longer available.

The section of PwC/ULI's analysis titled "Emerging Trends in Canadian Real Estate" begins:

As higher financing costs compound other industry pressures (such as building costs, reduced investor demand, regulatory challenges, and labour shortages) and investors weigh real estate investment against other opportunities offering attractive returns with less risk, the sector is less compelling than it was during the previous period of strong returns and cheap and plentiful capital.

It continues: "After more than two years of an industry slowdown," during which "interest rates remained higher for longer than many expected … Canadian real estate companies have been paying close attention to whether declining interest rates will reinvigorate the market for investment and development."

But obstacles to securing financing to build or buy residential real estate, according to PwC/ILU, continue because:

• Banks are adopting more conservative lending standards due to economic and regulatory pressures,

• Pension funds, insurers, and other institutions having reached or exceeded their real estate allocation limits are moving capital into other sectors, and

• REITs (Real Estate Investment Trusts) trading at a significant discount to their net asset values are limited in their ability to raise capital or pursue accretive acquisitions.

The bottom line is that "growth opportunities [upside] from real estate being harder to find" because renters and "end-users" have reached the limit of their ability to pay more for housing – even with interest rates falling finally after increasing for more than a year and remaining high for another – "many investors are less willing to take risks in real estate and the returns from lower-risk investments can appear more attractive."

Rising interest rates are crucial to this story because they reduce the price a held property bought in a lower interest rate environment can fetch. This is because as interest rates rise, the same number of dollars buy less principal. Holders cutting bait to limit losses when interest rates increase lowers prices further.

"Extend and pretend," according to PwC and ULI, has been a "commonly cited adage" in real-estate financing circles over the past year as lenders trying to avoid realizing substantial losses on their loans are not rushing to force indebted developers to liquidate assets but rework loan terms hoping borrowers will be able to pay them back when market conditions improve.

This strategy has limited the number of distressed sales on the market, but "some argue that an increase in foreclosures could add pressure to appraised property values, further tightening lending conditions."

Falling residential real estate prices, which had been steadily inflated by near-zero interest rates for more than 20 years, are steering speculators' interest towards sovereign and corporate debt and other competing asset classes such as industrial infrastructure.

Industrial infrastructure includes data centers, which are needed to support AI and IOT (internet of things) applications; cold storage facilities to feed a growing population, facilitate online grocery shopping, and support meal delivery; student housing; senior housing; and life sciences real estate, which provide specialized capabilities for developing and manufacturing biotechnology, pharmaceuticals, and medical devices.

All these are envisioned to be built in quantity for the foreseeable future. Most should be in public, not private, hands to maximize cost-efficiency, but finance capital appropriates and financializes sectors with a vengeance. "Large institutional operators … nationally branded providers" are already driving up the price of student housing in Europe.

The question arises: how will housing be built when private sector capital, abandoning housing to pursue other speculative avenues, avoids financing housing construction?

The answer is: by managing housing as a public utility, as it should have been all along; financing housing construction with low- or no-interest public loans; and renting what is built in perpetuity for what it costs to build and maintain it.

Financializing housing is one of the worst ideas of the 21st century. Now is the time to junk it.